German Business Sentiment May Reach High

German business confidence probably rose to the highest in seven months in February as progress in taming Europe’s debt crisis tempered the risk of a recession.

The Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 108.8 from 108.3 in January, according to the median forecast of 38 economists in a Bloomberg News survey. That would be the fourth straight gain and the highest value since July. The institute will release the report at 10 a.m. in Munich today.

Greece’s clinching of a second bailout package in Brussels this week and falling yields on government debt from Spain to Italy have buoyed investors’ optimism that the debt crisis has been shackled for now. The German economy, Europe’s largest, contracted less than forecast in the fourth quarter of 2011 and demand from abroad helped factory orders beat estimates in December, adding to signs the country can skirt a recession.

“Germany will be one of the first countries to benefit from the return in confidence because fundamentally the economy is strong,” said Aline Schuiling, an economist at ABN Amro NV in Amsterdam. “They also don’t face such deep problems with fiscal austerity as other countries.”

Ifo’s gauge of the current situation may have increased to 116.5 from 116.3, while an index measuring executives’ expectations probably advanced to 102 from 100.9, the survey of economists shows.

Economic Outlook

Germany’s Bundesbank said in its monthly report on Feb. 20 that the outlook for the economy has “improved perceptibly,” even though “risks relating to the sovereign-debt crisis remain.”

The Bundesbank in December forecast growth will slow to 0.6 percent this year from 3 percent in 2011 before accelerating to 1.8 percent in 2013.

Germany’s benchmark DAX (DAX) share index has gained 16 percent this year, outperforming all its major European peers.

Continental AG (CON), Europe’s second-biggest car-parts maker, said on Feb. 20 it plans to pay its first dividend in four years after posting a gain in 2011 profit. Puma SE (PUM), Europe’s second- largest sporting-goods maker, on Feb. 15 forecast earnings will grow this year and next after posting a 2011 profit that beat analysts’ estimates.

Debt Crisis

Still, the euro area is struggling to recover from a debt crisis that’s weighing on confidence and output. While euro-area finance ministers reached agreement on a second bailout package for Greece on Feb. 21 that is vital to stave off default next month, economists from Commerzbank AG to Citigroup Inc. concluded the country may fail to deliver on its austerity commitments.

Belt-tightening across the euro region is damping growth in Germany’s biggest export market. The 17-nation economy contracted 0.3 percent in the fourth quarter, with German gross domestic product falling 0.2 percent.

European services and manufacturing output unexpectedly shrank in February, a report showed yesterday.

“Germany’s trade with the euro area is facing a lot of headwinds,” said Jens Sondergaard, senior European economist at Nomura International Plc in London. “But many people are still being too pessimistic on the German economy.”

To contact the reporter on this story: Jeff Black in Frankfurt at jblack25@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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